Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

My grannie (82) has owned one building in NW London for over 20 years, and so by now she has been trapped by the London housing bubble and a potentially huge IHT bill.
Those are the facts we are dealing with:
- The property is a terraced house, which is divided into TWO properties, one in the basement, and another in the upper floors.
- My grandmother lives in the basement floor. It has been her main residence since she moved in with her late husband. She owns the freehold.
- The upper floor is now occupied by my brother, rent free.
- Several estate agencies have evaluated the property, and said that the “asking price” for sale will be around 1.450.000 pounds…. BUT
- The property is in bad shape and a Chartered Surveyor has told us that there is “possible subsidence” and “possible wet rafters”, among many other small problems, so I believe that in case of a valuation for transfer or IHT purposes , the final amount will be much less, around a million or so.
- My mother is the only inheritor, as there are no other siblings.
The plan is for my grandmother to transfer her dwelling to my mother, as a potentially exempt transfer. As my grandmother will be giving her main residence to her only child, there will be no CGT, nor Stamp Duty to pay. Is it true? As we understand, this step won’t cost any money on taxes but some paperwork and legal expenses. Are we wrong?
My mother (who lives in Spain) will then reform the basement and rent the apartment. Will She be obliged to declare that property to the Spanish authorities for tax purposes?
We know that the rent´s Income Tax will only be paid to the HMRC, but are clueless about the property.
Meanwhile, my grandmother will move to the upper floor, which will be declared as her main dwelling. If everything goes fine, the next movement will be to transfer the upper apartment again after 7 years or before if the valuation we get about the TWO properties goes below the Nil Rate Band allowance.
As we believe, we have an Ace in the Nil Rate Band allowance my grandmother estate is entitled, even if she passes away before the notorious 7 years are over.
We assume that the Nil Rate Band in her case of will be of at least 325.000 + 125.000 pounds, but we can also add up my grandfather`s allowance , who passed away in 2004 and who left all of his estate (the house) to his wife. So another 450.000 might be added up, to a very nice amount of 900.000 pounds. Is that so?

Do you think this is feasible, or just and elaborate and wishful fantasy? If It is possible, how much do you think it will cost in taxes, paperwork and legal counsel?

mellizo wrote: »

Do you think this is feasible, or just and elaborate and wishful fantasy? If It is possible, how much do you think it will cost in taxes, paperwork and legal counsel?

There are far better qualified people on here than I, but here are my thoughts.


1. Your grandmother cannot gift the house to your mother and continue to live in the property. It is a 'gift with reservation' and will not be a potentially exempt transfer.



2. Provided the house is left to your mother she will benefit from the £900k ceiling, rising to £1million in 2020. That is assuming your grandfather didn't use any of his nil rate band.



3. Your mother not living in the house, and renting it will be liable for capital gains tax.


4. As there are two houses in the building, surely the second property is liable for CGT. It is no different to owning a second house in another part of London.


5. I wonder how HMRC would view your brother living rent free in a second house. Might it be assessed for a notional income and thus use up her IHT nil rate band.


Just my thoughts!

Hi
My father in law died in 2001 - he passed everything to his wife. She is now on her very last legs and albeit late we are planning ahead. She is in a home , the house was sold to pay for this but after som initial issues we managed to get the home paid for under the NHS Continuing Healthcare scheme. As such she has a pot of money of around £450000.
I understand that her Inheritance tax allowance would be £325,000 and by rights her late husbands should also be available - covering the whole amount.
The issue is that there is no trace of his will. The use of the joint allowance was not announced and implemented until 2007 (I think). By this time he had been dead 6 years and all of those records have gone as at the time they were not needed.
What can we do to ensure that the joint allowance is available on her estate?
We have checked the online probate records and there is nothing listed for him , his solicitor was a one man band and has also died.
Any advice appreciated

Hi All

I was recently diagnosed with cancer and it has led me to think about inheritance tax and whether there is anything I should do to plan for the lowest IHT burden possible.

My circumstances

I have a partner - not married - we own a property as Joint Tenants . Property valued at £450,000 - with a joint mortgage on it of around £315,000.

We have no savings and no debts

I have a pension with a current value of around £60,000

I life assurance through my employer (a "death in service" benefit I guess) which pays out 8 times my basic salary - which equates to £575,000 - and the beneficiaries for this are listed with my employer - as follows

Partner - 55% (£316,250)
Sister - 15% (£86,250)
Brother - 15% (£86,250)
Niece (only 5 yrs old) - 7.5% ( £43,125)
Nephew (9 yrs old) - 7.5% (£43,125)

I'd like my partner to get my pension and I believe they are named with my pension provider as my beneficiary.

I'm happy with the beneficiaries and percentages above for my death in service benefit - as this pays off the mortgage for my partner (+ my pension) with my family getting the rest.

I don't have a Will but - as per the above - beneficiaries are named with my employer/pension provider and happy for the property to go to my partner as it automatically will.

So what IHT would be payable on the above - literally just 40% on everything above, over my £325k threshold? Can/should I do anything to lower this?

What would be the effect (if anything) of marrying my partner? Assume then I would need a Will to ensure that my death-in-service benefit can go to my sister/ brother/ niece/ nephew with no issues or possibility of being challenged?

I admit to being totally green about this, so any advice would be welcome. Thanks!